UK Law and Practice Contributed by: Fergus Wheeler, Paul Yin, Tracy Liu and Medha Vikram, Latham & Watkins
also agree to a declining premium schedule (eg, NC1, 101). The exact prepayment fee terms are a matter of commercial negotiation.
with the DTT rate of withholding tax. To obtain a DTTP, the lender must provide a tax residence certificate from its home jurisdiction tax author - ity and seek confirmation from HMRC as to its entitlement to treaty benefits. Tax transparent lending vehicles can only use the DTTP scheme if all constituent beneficial owners of the income qualify for the same DTT benefits under the same DTT. If they do not, the DTTP is not applicable and each beneficial owner will need to make a long-form certificated claim. Not all DTTs offer complete exemption from with - holding tax and DTTP access can be complex, so other exemptions like the qualifying private placement (“QPP”) exemption should be con - sidered. Domestic Exemptions QPP Conditions relating to the lender, borrower and terms of the debt (eg, a debt term under 50 years and at least GBP10 million (can comprise a placement of several debt securities)) will need to be satisfied. The lender (or its partners on its behalf) must make several confirmations, includ - ing residence in a “qualifying territory” with a DTT with the UK that includes a non-discrimination clause and the borrower must not be connected to the lender. The latter requires careful consid - eration if the private credit lender is participating in a loan by the main fund’s lending vehicle. Sovereign immunity This public international law principle exempts certain foreign government entities from with - holding tax on income earned in another country. Corporate-to-corporate This domestic exemption is available if the pri - vate credit lender is lending through a UK tax-
4. Tax Considerations 4.1 Withholding Tax
While principal and fee payments aren’t sub - ject to UK withholding tax, interest payments are generally subject to withholding tax of 20% under the current law. Double Tax Treaty Exemption Private credit lenders often rely on an exemption under a double tax treaty (“DTT”) if no domes - tic exemption is available. The conditions of the DTT and tax authority requirements must be analysed to ensure compliance. For exam - ple, the benefit of a DTT can generally only be claimed by persons that are “residents” of one or both of the contracting states. A person is usually a “resident” of a contracting state if they are “liable to tax” in it by reason of domicile, residence, etc (Article 4(1) of the OECD model tax convention). If a private credit lender is lend - ing through a tax transparent lending vehicle ie, where the partners or members of the entity are directly responsible for tax arising on the income or gains of the entity, the vehicle itself is not “liable to tax” in that contracting state for the purposes of that treaty and, therefore, will not be a “resident” of that contracting state for those purposes. The application of the DTT to the vehicle would generally be denied. Beneficial owners of the interest received by the tax transparent lending vehicle should seek relief in their jurisdictions of tax residence instead. The UK’s double tax treaty passport (“DTTP”) scheme allows expedited authorisation for non- UK lenders to receive UK source interest in line
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